How much is gold and silver worth? How is this determined?
The market price for buying gold and silver is determined by the "spot price” but that’s never going to be what you pay for metals.
When you Google the price of gold, that’s the spot price. Spot prices are the price for raw, refined metal in bulk quantities. The spot price represents the current market price for a particular metal, which is based on the supply and demand of that metal in the global market.
On the other hand, the physical price represents the price you'll pay for a physical product, like a gold or silver coin or bar.
Unlike the spot price, which is determined by the futures market, the physical price includes several additional costs that are associated with the production and distribution of the physical product...
For instance, if silver is $30 per ounce, you might pay $35 per ounce for a silver coin, or $325 for a 10-oz silver bar. The difference between the prices is what we call the “premium”.
And there's a common misconception that premiums are just profits for the dealers. Well, that couldn't be further from the truth.
Premiums cover the cost of refining, minting, distribution, market prices and a profit for the dealer or dealers involved. There’s no set formula for bullion premiums. They are determined by market conditions and demand.
When demand is high, premiums are high. When demand is lower, premiums are lower. However, different types of gold have varying premiums depending on the dealer, with bullion coins or smaller gold denominations typically having higher premiums than gold bars.
Keep in mind that you’ll be able to recover some but not all of the premium once you sell.
It is worth mentioning that some gold dealers charge higher premiums for various expenses such as shipping, handling, storage, credit card usage, and, in some cases, a greater profit.
In other words, do not be mad when a dealer charges higher than spot price. At the same time, be weary if a dealer offers you gold or silver at spot price, as this would be a red flag. It is inevitable that the physical price is higher than the spot, and it is necessary to keep precious metal dealers in business.
